1 00:00:02,910 --> 00:00:08,940 I'll start by just outlining what we're going to try and cover today, and then we'll get stuck in. 2 00:00:09,420 --> 00:00:12,690 So we're looking at we're looking at early stage entrepreneurial businesses. 3 00:00:12,690 --> 00:00:16,589 I'm not I'm not trying to deal with the established multinationals. 4 00:00:16,590 --> 00:00:25,310 I'm talking about the sort of businesses that you may might set up to exploit some technology or a market opportunity or something like that. 5 00:00:25,320 --> 00:00:31,920 What are we going to look at? Things like the structure, how you set the business up, and there's some important stuff to learn to learn there, 6 00:00:33,300 --> 00:00:40,440 how to fund it, how to make sure that you've got the right funding by setting good budgets, record keeping. 7 00:00:40,950 --> 00:00:45,750 You may spot a pattern emerging when when the subject of recordkeeping comes up. 8 00:00:46,080 --> 00:00:49,800 I may just bang on about how important good recordkeeping is. 9 00:00:50,320 --> 00:00:55,680 Just might. Well, we'll see how that that develops. Compliance. 10 00:00:55,680 --> 00:01:02,130 There is a lot of there are a lot of rules out there. Generally speaking, they're not too onerous. 11 00:01:02,610 --> 00:01:08,370 As long as you do things the way that the rules want you to do them, it isn't it isn't too bad a world. 12 00:01:08,370 --> 00:01:13,620 There are there are some jurisdictions where they the compliance rules are very onerous. 13 00:01:13,860 --> 00:01:18,299 There are others where they're incredibly lenient. But you perhaps wish there were a bit more onus. 14 00:01:18,300 --> 00:01:21,660 But here here in the UK we have a fairly balanced, 15 00:01:22,440 --> 00:01:31,799 relatively lenient compliance regime for ordinary businesses reporting businesses 16 00:01:31,800 --> 00:01:36,270 perform and financially that means reporting in the various directions. 17 00:01:36,270 --> 00:01:41,910 And we'll talk a little bit about what needs to be done, what can be done and how best to achieve it. 18 00:01:43,440 --> 00:01:52,110 And tax will rear its ugly head and just just occasionally friendly head as well, but mostly ugly. 19 00:01:52,830 --> 00:01:58,020 And we'll talk a bit about how to keep HCM robbers and cheats off your back. 20 00:01:59,760 --> 00:02:04,860 Okay. So we're talking about, generally speaking, to two types of business. 21 00:02:05,190 --> 00:02:12,570 When they're set up, there's the ones that will hit the ground running and start making widgets or providing services on day one. 22 00:02:13,290 --> 00:02:21,870 And then there's the ones that are going to be perhaps in existence for, you know, some months, couple of years or in the case of, 23 00:02:22,230 --> 00:02:29,340 you know, drug discovery companies, 20 years before they'll actually make anything that anybody will be able to to to sell. 24 00:02:30,480 --> 00:02:34,950 And the reason for that, there's a lot of similarities between the businesses, 25 00:02:34,950 --> 00:02:38,549 but there's quite a few differences, particularly in the area of funding. 26 00:02:38,550 --> 00:02:41,460 And we'll talk a little bit about that later on. 27 00:02:41,940 --> 00:02:48,120 Just out of interest, the business, the business you're involved in or thinking of setting up or whatever, 28 00:02:48,870 --> 00:02:54,310 how many people would regard that as one of the hit the ground running type businesses that we'll start you. 29 00:02:54,400 --> 00:03:00,120 Just give me a show of hands of people are thinking of setting up a business that will be doing stuff from day to day one. 30 00:03:01,140 --> 00:03:06,960 And how many are in the sort of well, I've got a bit of technology that needs finishing off or designing or stuff like that. 31 00:03:07,470 --> 00:03:12,360 Okay. So it's nice mixture, probably a little bit more of the second sort, but nonetheless is a nice mixture. 32 00:03:12,360 --> 00:03:15,390 So we'll we'll cover both bits. Okay. 33 00:03:15,630 --> 00:03:17,770 This is vehicles. I'm not talking about the company car here. 34 00:03:17,790 --> 00:03:24,180 I'm talking about the the the the constitutional structure that is used to set the business up. 35 00:03:25,050 --> 00:03:31,170 The standard thing for most businesses in the UK is a simple, limited company. 36 00:03:31,470 --> 00:03:36,180 And the reason for that is because for most cases, it is the most appropriate business. 37 00:03:37,920 --> 00:03:42,629 The there's the unincorporated business. So that's the sole trader, me trading. 38 00:03:42,630 --> 00:03:47,430 As you know, the business is mine and I own everything and so on. 39 00:03:47,850 --> 00:03:50,339 Or the partnership, the traditional partnership, 40 00:03:50,340 --> 00:03:57,750 where there's two or more people who are carrying on business in common with a view to profit as defined by the Partnership Act of 1890. 41 00:03:57,960 --> 00:04:05,310 That wonderful piece of legislation that's 104 over 25 years old now has stood 42 00:04:05,310 --> 00:04:09,690 the test of time and is still great for defining how how partnerships operate. 43 00:04:10,170 --> 00:04:10,499 Anyway, 44 00:04:10,500 --> 00:04:20,880 we look at so that unincorporated business sometimes the right choice sole traders partnerships when the business is small or low risk or very simple. 45 00:04:21,540 --> 00:04:25,739 The reason for mentioning low risk is the clearly the title limited company. 46 00:04:25,740 --> 00:04:29,370 Your liability is limited with the unincorporated businesses. 47 00:04:29,370 --> 00:04:37,620 Your liability is not limited. All the partners or the proprietors are all jointly and severally liable for all the obligations of that. 48 00:04:37,830 --> 00:04:43,590 So if there's any risk attached to it, probably best to avoid sole traders and partnerships. 49 00:04:45,030 --> 00:04:49,409 The the the sort of thing that falls between the two is the LLP relatively, 50 00:04:49,410 --> 00:04:54,450 relatively relative newcomer on the block, although they've been around for so decades now. 51 00:04:54,480 --> 00:05:02,220 But they are a company legally and a partnership from a tax point of view. 52 00:05:03,300 --> 00:05:11,160 And and they they, they're very useful in certain situations, although the rules have just very recently changed. 53 00:05:11,370 --> 00:05:16,170 And the number of situations in which they are really useful aren't quite as many as they used to be. 54 00:05:16,380 --> 00:05:22,770 But nonetheless, they're right that the commonest place you see is in partnerships of professionals, 55 00:05:23,010 --> 00:05:27,420 architects, accountants, solicitors, that kind of thing, where it's probably the right, the right thing. 56 00:05:27,780 --> 00:05:32,939 But for most companies that are going to bash widgets, provide consultancy, design, 57 00:05:32,940 --> 00:05:36,480 software and so on, the right thing to do is just set up a limited company. 58 00:05:38,210 --> 00:05:44,030 There are specialist entities for community based projects and things like that. 59 00:05:44,030 --> 00:05:48,050 But beyond beyond the scope of this, today's session. 60 00:05:49,430 --> 00:05:58,250 Okay. One of the most important things when you're setting up a company is to get the shareholding structure right on day one. 61 00:05:59,280 --> 00:06:04,609 Okay. It's absolutely vital to do that because there's an awful lot it's very, 62 00:06:04,610 --> 00:06:10,940 very difficult to change later and has the guy with his hands tied because he got the shares wrong. 63 00:06:11,690 --> 00:06:17,120 And I will give you some detail about that, that if you come away with nothing other than that, 64 00:06:18,290 --> 00:06:27,260 it will be a very useful thing to have to have picked up because it can be an absolute disaster to have the wrong shareholding structure. 65 00:06:27,500 --> 00:06:37,040 Once the company gets up and running, okay, I'll give you a run, a run through as to an example of why it might be a mess. 66 00:06:38,790 --> 00:06:42,149 A new research company has formed. It's going to invent something. 67 00:06:42,150 --> 00:06:45,750 It's going to wear it's got a piece of software that's going to exploit or something like that. 68 00:06:47,130 --> 00:06:54,690 And you know, it's based in Oxford. So there's lots of business angels around and a suitable choir of angels is found here, 69 00:06:54,690 --> 00:07:01,860 are going to put some money in and they're going to pump in £1,000,000 for 25% of the company now. 70 00:07:02,520 --> 00:07:14,730 Not not an unreasonable scenario, but very nice. And then one of the academics who founded the company gets to gets to take some shares. 71 00:07:15,540 --> 00:07:18,840 And let's say he gets 10% of the shares, but he's not putting any money in. 72 00:07:19,050 --> 00:07:22,950 So he's only going to pay face value, a pound a share for these ten shares. 73 00:07:22,950 --> 00:07:26,010 So he's going to cough up a tenner from his back pocket for that. 74 00:07:27,000 --> 00:07:30,330 Seems alright, isn't it. Okay. 75 00:07:30,510 --> 00:07:34,290 An academic joins the board. He's going to be the technical director of this company. 76 00:07:34,290 --> 00:07:41,340 That's why they they wanted him and why they offered him shares. Well, let's just go through what H.M. Revenue and cheating would say about that. 77 00:07:43,680 --> 00:07:47,130 25% for a million quid. So a quarter the company's worth a million quid. 78 00:07:47,730 --> 00:07:51,960 When I was at school, that meant that the company would have been worth 4 million quid. 79 00:07:52,620 --> 00:07:54,360 Not to difficult maths there. 80 00:07:55,200 --> 00:08:05,520 The academic has received 10% of that for a negligible sum, i.e. he's received shares worth 400,000 without having paid really anything for them. 81 00:08:06,480 --> 00:08:13,770 So [INAUDIBLE] get a tax bill of 45% of 400,000 quid, i.e. £180,000. 82 00:08:15,210 --> 00:08:20,940 And the company may actually be asked to pay 13.8% of 400,000 as well in National Insurance. 83 00:08:22,570 --> 00:08:28,420 And the academic hasn't actually received any money at this stage at all. 84 00:08:28,420 --> 00:08:31,719 Not a penny. And yet he's been asked by the tax man. 85 00:08:31,720 --> 00:08:37,460 280,000. That's because she got the shares in the wrong order. 86 00:08:38,390 --> 00:08:46,310 If you issue the shares to the academic on day one and then wait a decent interval and then take the investors money. 87 00:08:47,550 --> 00:08:48,240 It works. 88 00:08:50,860 --> 00:08:57,730 You can see what I mean about getting it right, getting it doing things in the right order and the danger of of getting it in the wrong order. 89 00:08:59,980 --> 00:09:05,020 Okay. Once you've got value built up in a company. 90 00:09:05,020 --> 00:09:07,220 And typically there are two things that cause that. 91 00:09:07,270 --> 00:09:15,730 Well, three things come up with the cause that if the same IP transferred into the company or it builds up and acquires some IP, 92 00:09:16,030 --> 00:09:22,930 protects it with patents or something like that, or creates it, that builds up value in the company if it makes profits. 93 00:09:23,680 --> 00:09:25,150 Value builds up in a company. 94 00:09:26,120 --> 00:09:31,910 And if he gets a funding round, if someone pumps in a million quid for a quarter of the company, then the company is worth 4 million quid. 95 00:09:32,180 --> 00:09:38,030 And that that's a stake in the ground that the tax man will stick to and say, you know, 96 00:09:38,420 --> 00:09:43,160 I need I need very, very and certainly need convincing that it's come down from that. 97 00:09:43,460 --> 00:09:46,550 And therefore, you start moving these shares around. 98 00:09:47,330 --> 00:09:52,700 You end up with problems. Any transfer of those shares gives two problems. 99 00:09:53,150 --> 00:09:58,490 The transfer all has made a disposal which triggers capital gains tax, even if it doesn't get any money. 100 00:09:59,450 --> 00:10:03,859 And the transferee could have an income tax problem. 101 00:10:03,860 --> 00:10:07,640 If they're going to be involved in the company in any way as an employee or a director, 102 00:10:08,360 --> 00:10:12,060 he needs to get these things right when there's no value in the company. 103 00:10:12,090 --> 00:10:17,070 Stop, stop these sort of things happening. Okay. 104 00:10:17,340 --> 00:10:21,550 Let's move on to budgeting. Okay. 105 00:10:22,270 --> 00:10:25,600 Of those people who stuck their hands up. They've got businesses. The rest of it. 106 00:10:25,930 --> 00:10:30,010 How many of them wrote a business plan? Can we have a show of hands? Business plan? 107 00:10:30,520 --> 00:10:33,700 Yeah. I'd expect to see more hands than that. You should. 108 00:10:33,730 --> 00:10:36,820 You should do it. Even if you. Even if it's only on the back of a [INAUDIBLE] packet. 109 00:10:36,820 --> 00:10:39,930 You should do some kind of a business plan to. 110 00:10:40,280 --> 00:10:46,840 To budget for your business. And in those, there'll be financial projections, which is a broad brush medium term. 111 00:10:47,110 --> 00:10:49,829 Typically, the investors, if you're trying to get money out of investors, 112 00:10:49,830 --> 00:10:54,430 you're going to go for five years, sometimes slightly longer, sometimes slightly shorter. 113 00:10:54,430 --> 00:11:02,890 But that's the sort of thing. Very broad brush you'll be showing the the main figures, turnover, profitability, cash requirement and so on. 114 00:11:04,360 --> 00:11:08,920 But once you get going, you need a much more detailed operating budget, 115 00:11:09,310 --> 00:11:13,870 which is short term, perhaps only six months or a year, to measure performance against, 116 00:11:13,870 --> 00:11:21,040 to make sure that having planned to do this and spend this and earn this and so on and so forth that you're actually doing it. 117 00:11:21,370 --> 00:11:28,960 And if you're not doing it, get a a sort of explanation as to where you're departing from that. 118 00:11:31,390 --> 00:11:35,670 So you're comparing performance when you're underway? Obviously, they've got to be consistent. 119 00:11:35,680 --> 00:11:41,110 It's no good doing a business plan that tells the investors that you're going to make £10 million in the 120 00:11:41,110 --> 00:11:48,400 first year of profit and then set your operating budget to make a loss or break even or something like that. 121 00:11:50,740 --> 00:11:56,830 So you start with the same set of assumptions, same set of data, same underlying arithmetic. 122 00:11:57,310 --> 00:12:02,070 Present them in a slightly different form. Talk about funding now. 123 00:12:03,210 --> 00:12:11,610 We talk about the pre-revenue enterprises, the ones they've got some research to do or some development or some market research or whatever. 124 00:12:11,910 --> 00:12:20,790 Finish the sell. Finish writing the software. Finish. Take the prototype from prototype two to production version, those sort of things. 125 00:12:21,750 --> 00:12:26,790 You need equity. You can't get a bank to fund those. 126 00:12:27,240 --> 00:12:32,370 And it's no good whingeing about the dreadful fat cats in the bank who are failing to support SMEs. 127 00:12:32,580 --> 00:12:40,800 It would be inappropriate for them to do so that it wouldn't. It's not the right function of the banks to take a risk on a pre-revenue enterprise. 128 00:12:41,130 --> 00:12:46,110 You need equity and the sources of equity are on the smallest scale. 129 00:12:46,140 --> 00:12:55,650 What I often jokingly referred to as the three F's fools, friends and family who pump a bit of money in a second stage. 130 00:12:55,650 --> 00:13:03,510 Then the flying in from from that cloud, the business angels, who tend to be people who've made, you know, 131 00:13:03,750 --> 00:13:13,170 made their own modest pile from their own entrepreneurial activities and would like to invest in, you know, the next generation of of entrepreneurs. 132 00:13:13,740 --> 00:13:20,300 Or if you move up to next scale, the venture capitalists, the the institutional, you know, add a couple more noughts. 133 00:13:20,310 --> 00:13:24,960 There's no point going to them. And unless you want something with an awful lot of noughts on the end of it. 134 00:13:25,830 --> 00:13:33,360 Those are the scales. But it's got to be equity because the banks will not, you know, grant you an overdraft to do to do R&D. 135 00:13:33,390 --> 00:13:34,860 It just it just ain't going to happen. 136 00:13:36,960 --> 00:13:42,630 On the other hand, revenue generating enterprises, first of all, they might not need any funding because if you are starting up, 137 00:13:43,380 --> 00:13:49,380 say, providing services and the the first deliverers of those services are the founders of the business. 138 00:13:49,620 --> 00:13:53,250 So they can do it without that being a cost to the business. 139 00:13:53,640 --> 00:13:59,310 You know, that they're living on savings, you know, until they get the business up and going so they can provide the service, 140 00:13:59,310 --> 00:14:03,270 get the got some revenue in and the business doesn't actually need any funding. 141 00:14:04,260 --> 00:14:09,330 Or if it does, it could use debt or equity, both of which both of which work. 142 00:14:10,200 --> 00:14:16,950 But if you've got a source of revenue and demonstrable source of revenue, then the banks might actually look at you and let you some money. 143 00:14:20,790 --> 00:14:27,510 But. If you've been running a business which is basically using your own money or nobody's money, 144 00:14:28,350 --> 00:14:36,240 you can pretty much do what you like as long as you're legal. The moment you've got somebody else lending you money, unsurprisingly, 145 00:14:36,450 --> 00:14:44,670 they like to have things that allow them to see for sure that you're doing the right things with their money and 146 00:14:44,970 --> 00:14:52,110 behaving in a way that is consistent with what they what you said you would do and is proper and successful. 147 00:14:52,620 --> 00:14:57,410 So these additional responsibilities we'll talk about a bit in a moment. 148 00:14:57,420 --> 00:15:03,000 But they do they do kick in if you've taken external money. 149 00:15:04,910 --> 00:15:08,570 Right. We have got some money. We've got our business idea. 150 00:15:08,930 --> 00:15:18,620 We've set the company up. What do we have to do? Well, the first thing is we have to register three times with H.M. Revenue and cheating. 151 00:15:20,030 --> 00:15:20,460 Okay. 152 00:15:21,380 --> 00:15:31,340 Firstly, for assuming we're a company, a corporation tax, if it's an LLP or a sole trader partnership or whatever, then it would be for income tax. 153 00:15:31,340 --> 00:15:36,920 But there's a registration of the trading activity of the business, usually for corporation tax. 154 00:15:38,860 --> 00:15:47,740 VAT. Because unless you are, your turnover is going to be below 79,000 or you're going to be doing only exempt supplies. 155 00:15:47,950 --> 00:15:54,020 You're going to need to be registered for VAT. So that's a second registration and for PAYE and RTI. 156 00:15:54,040 --> 00:15:57,280 Now as you can see, we're starting to get a few acronyms kicking in. 157 00:15:57,790 --> 00:16:00,940 RTI, RTI, only one real time information. 158 00:16:01,570 --> 00:16:11,590 Now, traditionally, the pay system during the year, your employer, if you're if you're if you are an employee, 159 00:16:11,770 --> 00:16:18,700 their employer calculates your salary, calculates the tax, and then that's deducted and operates that through throughout the whole year. 160 00:16:18,880 --> 00:16:26,709 And then we're pushing to return at the end of the year to tell H.M. Revenue and Customs what had been paid, 161 00:16:26,710 --> 00:16:32,590 what had been deducted from it, and so on and so forth. They decided they need a bit more information about us. 162 00:16:32,590 --> 00:16:41,370 And now. Every single time you get a payslip, an RTI submission has taken place. 163 00:16:41,670 --> 00:16:46,010 HMRC knew what your gross pay was, what your tax was, what? 164 00:16:46,170 --> 00:16:50,459 And I was before you did. Certainly before you got it. 165 00:16:50,460 --> 00:16:55,260 Anyway, that is live information. So now they are on top of it. 166 00:16:55,560 --> 00:17:06,210 And everybody who has employees and employees includes directors and pays them has to be registered for PAYE and RTI. 167 00:17:10,030 --> 00:17:14,800 As I say, no employees because the directors inevitably get on the payroll. 168 00:17:14,950 --> 00:17:21,040 If you're paying yourself or your fellow directors out of the company, they need to go through the P.A. system. 169 00:17:24,110 --> 00:17:28,700 So we're going to keep some records. That's the closest you're going to get to a joke from me. 170 00:17:28,730 --> 00:17:31,940 Sorry about that. I'm an accountant. 171 00:17:31,940 --> 00:17:38,360 Not another not a humorist. What we're talking about here is bookkeeping, which isn't the same thing as accountancy. 172 00:17:38,360 --> 00:17:41,480 And I'll come to what the difference is between the two. 173 00:17:41,510 --> 00:17:47,010 They're both dealing debits and credits, but it's a bit like the difference between, you know, Lewis Hamilton and a taxi driver. 174 00:17:47,030 --> 00:17:51,020 They're both drivers, but there's a bit of a difference between what they actually get up to. 175 00:17:52,310 --> 00:17:54,650 Okay. Bookkeeping is a form of data capture, 176 00:17:55,250 --> 00:18:03,320 ensuring that you get all the transactions that go through a business and stick them into the accounting records. 177 00:18:03,800 --> 00:18:08,690 It's one of those things that needs a real, real painstaking accuracy. 178 00:18:08,690 --> 00:18:17,810 It doesn't need great brilliance, but it needs these to be it's a sort of a job for the for the the detail person, not the not the big thinker. 179 00:18:19,050 --> 00:18:26,640 Okay. What you can do. What you should do is implement systems of checks and controls. 180 00:18:26,910 --> 00:18:32,820 It is possible because lots of people, much cleverer than me have worked on this. 181 00:18:32,850 --> 00:18:36,780 It is possible to set up things where you can go right. 182 00:18:37,530 --> 00:18:51,030 If you've recorded this correctly in the system and everything has been done properly and and completely, that number will agree with that number. 183 00:18:51,600 --> 00:18:55,170 And if it doesn't, you must have done something wrong somewhere. 184 00:18:55,680 --> 00:18:57,600 So go back and check and do it again. 185 00:18:58,380 --> 00:19:08,100 But it does mean, you know, these checks and controls do mean it's possible to get things right and be absolutely certain that they are right. 186 00:19:08,580 --> 00:19:14,550 And it is very important. Now, I said I was going to bang on about the accuracy of of record keeping. 187 00:19:14,730 --> 00:19:18,200 And I am because there's no substitute for it. 188 00:19:18,260 --> 00:19:24,690 It is not an exercise which allows for any creativity. 189 00:19:24,780 --> 00:19:32,160 I mean, let's face it, accountancy is the one profession where the epithet creative is an insult, you know, 190 00:19:33,210 --> 00:19:39,450 and quite rightly, these things have to be a complete and accurate reflection of all the things that have happened, 191 00:19:39,450 --> 00:19:51,210 because without that, you're building blocks to do any kind of reporting and and planning aren't complete and the whole edifice collapses. 192 00:19:51,660 --> 00:19:58,020 So it is quite important to do that and I will possibly mention that again before I finish. 193 00:20:00,160 --> 00:20:04,240 But they are the basis for compliance. All the things that you are obliged to do. 194 00:20:04,480 --> 00:20:12,910 Of a financial and tax nature need good accounting records reporting telling people that need to know like your investors like you, 195 00:20:12,910 --> 00:20:18,670 like the tax man like the public companies house need to know what's going on. 196 00:20:18,970 --> 00:20:22,150 And if you can't got the basic building blocks, you can't report that to them. 197 00:20:22,150 --> 00:20:30,580 You get it wrong. And you know, that can result in mistrust or a prison sentence and everything in between. 198 00:20:31,360 --> 00:20:34,899 Okay. Planning. You can't tell what you can and can't plan. 199 00:20:34,900 --> 00:20:39,040 What you going to do next? Yeah. Unless you know accurately what you did this year. 200 00:20:41,910 --> 00:20:52,590 So and also businesses change and the techniques and systems and so on that you need to to do that evolve over the life of an enterprise. 201 00:20:52,890 --> 00:20:54,030 So you need to keep an eye on them. 202 00:20:55,020 --> 00:21:02,940 So what all these financial records, the books, the books, the books, I don't think I, I don't think many businesses have them still in books. 203 00:21:02,940 --> 00:21:06,540 But I'm old enough to remember when most businesses did have them in books. 204 00:21:06,540 --> 00:21:10,800 Now they have them in computers they use for compliance. 205 00:21:11,250 --> 00:21:17,700 They used for reporting. I saw this before. Planning, monitoring and so on. 206 00:21:17,850 --> 00:21:24,450 Management reporting. So when a business is very tiny, the back of a packet is enough. 207 00:21:24,750 --> 00:21:28,830 The people who set the business up and run it know every transaction. 208 00:21:29,070 --> 00:21:32,730 And it's ever so easy to to to know where it doesn't. 209 00:21:33,060 --> 00:21:41,250 It. The business doesn't have to grow to a particularly big size before you can't do that anymore, particularly if you're dead busy, 210 00:21:41,550 --> 00:21:44,610 which you will be if the business is growing and you'll be dead busy doing 211 00:21:44,610 --> 00:21:49,320 the science or the delivery or the marketing or whatever is you brilliant at, 212 00:21:49,470 --> 00:21:55,290 you know, brilliant as being an accountant. Otherwise you'd be up here giving the talk and I wouldn't have to. 213 00:21:56,040 --> 00:22:07,520 So you need to to give the usually give it the attention and put the systems in place and delegate the job to people who know what they're doing here. 214 00:22:08,040 --> 00:22:11,099 And it's used for management reporting, as I say, is used for financial reporting. 215 00:22:11,100 --> 00:22:18,990 That's the the formal bit at the year end that every business has to do and management have got to be involved in this. 216 00:22:19,290 --> 00:22:25,189 I'm going to take a moment away from the slides here. Just recently I come to inclusion. 217 00:22:25,190 --> 00:22:37,940 One of the biggest, biggest, biggest problems that I have encountered amongst people wanting to be entrepreneurs is the inability 218 00:22:38,360 --> 00:22:47,300 that many people have to go from the culture of large corporate business to the culture of an assembly, 219 00:22:47,870 --> 00:22:53,000 to the culture of a small business. I have seen that in a big organisation. 220 00:22:53,150 --> 00:23:00,350 There will be a department that deals with toenail clippings with hundreds of people who are experts on toenail clippings. 221 00:23:00,560 --> 00:23:06,050 So you don't have to worry about toenail clippings if, you know, if you are a senior manager. 222 00:23:07,980 --> 00:23:12,210 In an Smee. There isn't a toenail. There isn't even a person who deals with that. 223 00:23:12,600 --> 00:23:17,520 So if there are toenail clippings everywhere, the management, the business owners have to sort them out. 224 00:23:17,760 --> 00:23:22,740 And the same is true of the detail of financial reporting and recording. 225 00:23:23,010 --> 00:23:30,690 It is the responsibility of the founders and management of the small business. 226 00:23:31,140 --> 00:23:34,380 And I have seen so often people, 227 00:23:34,680 --> 00:23:45,780 businesses fail spectacularly because the the the founders who had grown up in large corporate world thought they could, you know, 228 00:23:46,260 --> 00:23:51,450 bring their their skills of whatever goods and services they've they've they've 229 00:23:51,450 --> 00:23:54,480 demonstrated they could deliver bring those to an entrepreneurial world. 230 00:23:54,930 --> 00:23:55,710 They can do that. 231 00:23:56,190 --> 00:24:04,920 What they can't do is bring themselves to concentrate on the small stuff, which will actually pull the rug out from under any small business. 232 00:24:05,190 --> 00:24:09,630 And this is one example where it needs to be done. 233 00:24:12,200 --> 00:24:16,760 Right. What's accounting then? What's the difference with that in bookkeeping? Now there is there's the accountant. 234 00:24:16,780 --> 00:24:20,230 Okay. You can tell he's an accountant. Is there light? 235 00:24:20,590 --> 00:24:24,610 He's got the coffee to keep him away because it's very, very light. Look at the shadows. 236 00:24:24,820 --> 00:24:28,389 His time is off. I'm done. Because, you know, that's. That's our lives. 237 00:24:28,390 --> 00:24:33,660 We work far harder than everybody else put together now. Okay. 238 00:24:34,300 --> 00:24:40,900 What does he. What is. What is all this about? I can't see. Why is it so flaming, complicated and mysterious? 239 00:24:41,290 --> 00:24:44,049 What? You know, surely, surely. 240 00:24:44,050 --> 00:24:51,090 You just, you know, if you want to know the profit, you just get the money in and subtract the money out and hey, presto, that's what was what. 241 00:24:51,300 --> 00:24:55,850 Why is it so weird? Okay. And what was this debit and credit nonsense? 242 00:24:55,870 --> 00:25:02,230 What's that about then? Plus and minus is fine for, you know, every science and every you know what? 243 00:25:03,220 --> 00:25:10,490 Why do we have to have new words for it? You know, this just accountants making make it work for themselves is obviously, you know is okay. 244 00:25:11,110 --> 00:25:17,470 Well we'll have a look at that and see what we're we're talking about the profit loss account. 245 00:25:17,500 --> 00:25:21,280 You've heard of one of those? What's it about? It's about revenue earned. 246 00:25:22,090 --> 00:25:28,810 Okay. And I used the word earned and put they put the old emphasis on that rather than revenue received. 247 00:25:29,870 --> 00:25:33,180 Because. Well, you see why in a second. 248 00:25:33,810 --> 00:25:39,330 And you need to deduct from that the costs incurred, not the ones that were paid, the ones that were incurred. 249 00:25:39,970 --> 00:25:49,070 There. What's the difference between them? Well. There's a sort of, you know, natural use of the words incurred and paid. 250 00:25:49,520 --> 00:25:57,700 You can pay this year for something you incurred last year. You you might have bought something, a service or had some goods delivered last period. 251 00:25:58,310 --> 00:26:02,390 And because you bought them on credit, you're allowed to pay for them this year. 252 00:26:02,690 --> 00:26:10,760 But the year that they need to go in and be deducted from your revenue is the year you use them, which is last year, not the year you paid for them. 253 00:26:10,770 --> 00:26:16,910 So it's quite important to get these things right. So you arrive at the profit and that's the profit for the period in question. 254 00:26:17,420 --> 00:26:24,470 So it is actually meaningful to talk about the result, the profit or loss for a period and the profit loss account represents a period. 255 00:26:25,730 --> 00:26:30,889 Okay. The other main report in a set of accounts is the balance sheet slightly more mysterious, 256 00:26:30,890 --> 00:26:37,460 but actually all it is is taking all the assets, all the good things, which might be physical, good things like. 257 00:26:38,480 --> 00:26:44,480 Like desks and chairs and computers and motorcars or sort of. 258 00:26:45,940 --> 00:26:54,249 Clearly notable good things like money in the bank or money in the tin, or slightly less obvious things. 259 00:26:54,250 --> 00:26:58,720 But the fact that somebody owes us money a debtor is an asset as well. 260 00:26:59,200 --> 00:27:03,190 Or even more intangible, things like goodwill know how. 261 00:27:04,060 --> 00:27:09,160 Intellectual property, but they're all pluses, they're all assets of the business and they all go on the balance sheet. 262 00:27:09,910 --> 00:27:14,380 On the debit side, you take away all the liabilities. 263 00:27:14,770 --> 00:27:17,679 They basically are things you owe obligations. 264 00:27:17,680 --> 00:27:24,940 You have to do something or pay something, and they come off and you end up with the net worth of the business. 265 00:27:25,270 --> 00:27:29,380 Now, that's the accounting net worth, by the way, not what the business should be sold for. 266 00:27:29,410 --> 00:27:33,610 Don't confuse the two. But but it is it is an important number. 267 00:27:34,450 --> 00:27:39,999 And that's the net worth at the balance sheet date. So the balance sheet is a snapshot. 268 00:27:40,000 --> 00:27:46,390 At a particular date, you have a profit loss account for the period. And then then the balance sheet represents a snapshot at the end of that period. 269 00:27:46,600 --> 00:27:49,660 It is meaningless to talk about the balance sheet for a period. 270 00:27:50,140 --> 00:27:57,130 Okay. You will hear people talk about it. But actually the balance sheet is as at a particular date the profit loss account is for a period. 271 00:27:58,660 --> 00:28:06,640 These are the main reports in a set of accounts, and they report how it performed and how it ended up at the end of the period. 272 00:28:08,120 --> 00:28:13,200 So let's see if we can maybe dispel the myth of money. 273 00:28:13,220 --> 00:28:16,040 Money in minus money out gives you the result. 274 00:28:16,550 --> 00:28:22,580 Here is an example of very simple business, and in its first reporting period, it buys 100 widgets and it pays a pound each for them, 275 00:28:22,850 --> 00:28:32,000 and therefore cash out is 100 quid and it sells those widgets for two and £2, 50 a pop, and therefore it gets in £250. 276 00:28:32,810 --> 00:28:37,460 And the profit, the end of the month is £150. And that is also the increase in cash. 277 00:28:37,970 --> 00:28:41,270 See, I told you so. I okay. 278 00:28:42,080 --> 00:28:49,370 That simple business, it works. If all you do is cash in, cash out, you do cash purchases, cash sales, you have a drive. 279 00:28:50,180 --> 00:28:54,470 On the other hand, let's just make it a tiny, tiny bit more complicated. 280 00:28:55,660 --> 00:28:58,780 Buy 100 widgets at a pound. You see a pattern emerging here. 281 00:28:59,700 --> 00:29:05,310 Sell those hundred widgets and this is a more profitable sale because they were not £2.50 but to 75. 282 00:29:05,640 --> 00:29:10,740 But we sell them on credit because we've we've agreed 60 day terms with our supplier. 283 00:29:12,090 --> 00:29:19,350 And we know you sound with our customer and we know this customer is sound they're going to pay, but they just want 60 days in which to do so. 284 00:29:19,590 --> 00:29:25,260 So no cash is received during the period that we're reporting for because the 60 days finishes after the end of it. 285 00:29:26,370 --> 00:29:33,750 You agree that on the cash basis, purely we've had a loss of £100, we've shelled out 100, received nothing. 286 00:29:34,290 --> 00:29:40,140 But, you know, if you do it properly, clearly, that's that's a profit of 175 quid. 287 00:29:41,180 --> 00:29:48,980 On what we call the accruals bases where you match the costs when they're incurred with the revenues when they are and. 288 00:29:50,050 --> 00:29:56,050 Okay. So we've already, with this really, really simple example, demonstrated the proper result. 289 00:29:56,410 --> 00:30:05,050 I think you agree the meaningful result is 175 plus the the result, if we just did money in, minus money out would give us a silly result. 290 00:30:06,020 --> 00:30:12,810 And just one more to do that. We've got a thousand widgets now and we only sell 100 of them. 291 00:30:12,820 --> 00:30:16,420 3.15 with the prices of these widgets is going up beautifully. 292 00:30:16,420 --> 00:30:29,630 We like this, okay? And it sells 100 of them and we get 315 and on the cash basis we actually make a loss of 685,000 out 350. 293 00:30:29,890 --> 00:30:38,590 Again, obviously nonsense because really the thing that matters is a 350 that sold and those 350 cost us 100 didn't they. 294 00:30:38,860 --> 00:30:47,649 A thousand I hundred. They're all a pound a peach so a hundred of them cost us £100 and so we've made 295 00:30:47,650 --> 00:30:54,490 a profit of 215 and we would have stock of 900 quid at the end of the month. 296 00:30:55,610 --> 00:30:59,820 Okay. Sorry. 297 00:30:59,970 --> 00:31:05,550 That's that's again, we haven't got very complicated now, really straightforward business, 298 00:31:06,030 --> 00:31:12,480 but we've already got, you know, debtors, creditors, accruals stock and all these kind of things that that we. 299 00:31:13,490 --> 00:31:21,620 Strange creatures called accountants like to talk about. And it really isn't a very, very difficult example when when the business has got many, 300 00:31:21,620 --> 00:31:26,660 many product lines and many, many stock lines and does manufacturing and so on, it's not just buying and selling. 301 00:31:26,900 --> 00:31:33,740 The whole thing gets even more complicated. And yes, you do need debits and credits and all this kind of nonsense to get it right. 302 00:31:35,590 --> 00:31:40,540 Okay. The reason for debits and credits. Well, the answer is positive and negative. 303 00:31:40,540 --> 00:31:46,029 Don't quite cut the mustard. I think you would agree that if you're if you were to say your bank balance is positive, 304 00:31:46,030 --> 00:31:49,870 it means you've got some money in the bank, which is clearly an asset. Okay. 305 00:31:50,590 --> 00:32:03,070 Similarly, if you said that the balance to the balance on my plastic supplier is a positive balance, I would expect I owe him something. 306 00:32:03,700 --> 00:32:08,980 Okay. My plastic supplier has obviously sent me a bill and I owe him £100. 307 00:32:10,590 --> 00:32:15,630 Those are both positive in any sort of natural sense of the word positive. 308 00:32:15,840 --> 00:32:20,700 But there are opposite signs. One is an asset. And the other one is a liability. 309 00:32:21,240 --> 00:32:25,680 So because positive or negative doesn't really do that, do the business. 310 00:32:25,890 --> 00:32:33,150 We've got these words debit and credit that these two signs are opposite, even though they're both positive in any sort of natural sense. 311 00:32:33,510 --> 00:32:37,140 So the first one, the asset is a debit. The second is a credit. 312 00:32:39,370 --> 00:32:46,780 Sales and cost of sales are profit loss account items. A positive number in sales means we've earned some income. 313 00:32:47,320 --> 00:32:54,910 A positive number in a cost like cost of sales or an overhead like rent would mean we've incurred some rent. 314 00:32:55,270 --> 00:33:00,860 They're both positive, but they're opposite. Inside one is income and therefore a credit. 315 00:33:01,030 --> 00:33:04,240 The other one is a cost and therefore a debit. 316 00:33:05,350 --> 00:33:10,930 We need those words because they the positive are the old positive and negative. 317 00:33:11,230 --> 00:33:15,370 Don't don't simply don't cut the mustard. Okay. 318 00:33:18,550 --> 00:33:22,960 So what? What is it that accountants do? Why do you need an accountant? 319 00:33:23,350 --> 00:33:27,580 You know, and the answer is to get from raw data to useful information. 320 00:33:28,120 --> 00:33:28,540 Okay. 321 00:33:28,810 --> 00:33:38,380 The guy who sells you, the salesman from the from the accounting software company will tell you that his software will prepare your accounts for you. 322 00:33:39,500 --> 00:33:52,490 Okay. The I would say the analogy is with the guy from from the hardware store sells you a spade on the grounds that it will dig a hole for you. 323 00:33:53,610 --> 00:34:00,900 Now a spade will not dig a hole for you. It's an awful lot easier to dig a hole with a spade than it is with your bare hands. 324 00:34:01,080 --> 00:34:04,409 By the end of the day, it will not do it for you. And the same is true of accounting. 325 00:34:04,410 --> 00:34:10,500 Software is a lot easier to prepare accounts from the raw data using accounting software. 326 00:34:10,950 --> 00:34:15,659 It's a lot easier than just using a piece of paper and a pencil, but you still need to do it. 327 00:34:15,660 --> 00:34:23,820 There's still a job to be done. What is that job? We're going from the books, the raw data capture to the accounts, which is useful information, 328 00:34:24,480 --> 00:34:28,890 and even from absolutely perfect books that have been maintained properly. 329 00:34:29,190 --> 00:34:34,500 There's still things that you need to do to them to get to the to get to the of information. 330 00:34:34,680 --> 00:34:38,520 For example, we have lots of non-cash and non-paper transactions. 331 00:34:39,480 --> 00:34:44,520 Stock movement. Okay. As stock is counted. 332 00:34:46,100 --> 00:34:53,330 It doesn't. Miraculously, that information that comes out of the stock account doesn't miraculously get into the books and records. 333 00:34:54,560 --> 00:35:03,440 Depreciation. Okay. What we're here talking about here is you buy an asset, you use it over five years and it wears out over five years. 334 00:35:03,620 --> 00:35:09,680 It doesn't produce a doc. It's to say I've worn out buy £100 worth that you can record in the books. 335 00:35:09,800 --> 00:35:18,710 You need to make adjustments for it using estimates and accounting adjustments, accruals and prepayments where you have incurred a cost. 336 00:35:19,400 --> 00:35:27,890 The classic one is something like a telephone, quarterly telephone bill, you, you. 337 00:35:28,700 --> 00:35:33,950 The beginning of the quarter, you start using your phone the next month of the quarter, you start using the phone, 338 00:35:34,130 --> 00:35:40,160 you have an accounting year end and then in the final quarter, you get a bill for £30,000 for the quarter. 339 00:35:40,520 --> 00:35:46,580 Well, let's be honest, that isn't nought nought 3000 of costs incurred. 340 00:35:46,700 --> 00:35:49,340 It's probably about a thousand, a thousand, a thousand. 341 00:35:49,580 --> 00:36:00,050 But unless you make some kind of adjustment for it, it'll look as if you incurred nothing in November, nothing in December, and £3,000 in January. 342 00:36:00,320 --> 00:36:04,820 But you need to adjust for it. Similarly, prepayments the other way round. 343 00:36:05,060 --> 00:36:08,090 You pay for a cost. You pay your insurance premium in advance. 344 00:36:09,220 --> 00:36:15,190 Unless you make an adjustment for it, it'll look as though in January you spent £12,000 on insurance, 345 00:36:15,370 --> 00:36:19,010 and then it's through February two, through to December, you didn't spend a penny. 346 00:36:19,030 --> 00:36:24,760 Whereas in truth, the actual cost was about £1,000 a month, and you need to put adjustments through to get to that. 347 00:36:27,610 --> 00:36:31,720 Okay. Who uses accounts? We've got lots of people who do. 348 00:36:32,080 --> 00:36:35,229 And we're going to I'm going to look at the management type accounts, 349 00:36:35,230 --> 00:36:42,850 which are clearly the title used designed with management in mind, designed to be useful to management as one sort. 350 00:36:42,910 --> 00:36:47,440 And obviously, management use it to make decisions about how the business is going and what. 351 00:36:48,520 --> 00:36:53,370 Steps they can take to take advantage of. Good news from those figures. 352 00:36:53,670 --> 00:36:58,170 This product line is doing well. Let's spend more effort on it. Remedial steps. 353 00:36:58,180 --> 00:37:02,400 This product lines doing rubbish will close it down or sort it out somehow. 354 00:37:04,260 --> 00:37:09,420 The investors, the shareholders we talked about, these business angels have come along and pumped a lot of money into your business. 355 00:37:09,990 --> 00:37:14,340 Good point. You know, they will want to know how things are going. 356 00:37:14,370 --> 00:37:20,190 They want to know that you're spending their money properly and that your business performance is in line with what you promised them. 357 00:37:20,370 --> 00:37:23,519 It would be lenders. The banks. 358 00:37:23,520 --> 00:37:26,879 If you are the kind of business that can borrow money, then lend it to you. 359 00:37:26,880 --> 00:37:31,080 But they'd like to monitor how you're doing with it just to to make sure. 360 00:37:31,290 --> 00:37:32,850 And they want to see these accounts. 361 00:37:33,960 --> 00:37:39,010 Anybody who might be looking to buy your business at the end when you're trying to sell it and make a lot of money out of it. 362 00:37:39,870 --> 00:37:45,030 Basically, anybody you want to see these accounts can see these accounts, but only if you want to see them. 363 00:37:45,060 --> 00:37:48,330 The owners of the business have these and can keep them secret. 364 00:37:49,320 --> 00:37:53,520 Financial statements, on the other hand, are a more formal compulsory document. 365 00:37:55,020 --> 00:38:00,540 External regulations. We want to see them. The taxman uses them to to work out the tax. 366 00:38:01,410 --> 00:38:05,520 They've got to go to companies, house the shareholders. 367 00:38:05,610 --> 00:38:09,900 Every shareholders entitled to a copy of the financial statements, the annual accounts. 368 00:38:10,560 --> 00:38:15,780 Customers can go to Companies House to see them. Suppliers can go to the companies house and see them. 369 00:38:16,620 --> 00:38:20,040 Competitors could go to companies house and say, Let me just get a bit scary, isn't it? 370 00:38:20,820 --> 00:38:27,270 The good news is that you can keep disclosure to a minimum. Most small businesses can file what are called abbreviated accounts. 371 00:38:27,270 --> 00:38:30,810 We don't give too much information away, okay? 372 00:38:31,020 --> 00:38:34,230 But they still have to file accounts and they still have to prepare the full set. 373 00:38:34,620 --> 00:38:41,310 Employees could go to Companies House and see what they what the fat cats who oppress them a taking out of the business. 374 00:38:42,390 --> 00:38:50,220 Need to be aware of that kind of thing. Basically, anybody can go to Companies House for payment of a modest fee. 375 00:38:50,460 --> 00:38:53,850 See what the accounts of every company look like. 376 00:38:56,570 --> 00:39:01,010 So let's look at the management account side. Usually the accounts profit loss account, balance sheet. 377 00:39:01,580 --> 00:39:05,420 Okay. What else do they have? Often comparison with budget. 378 00:39:05,530 --> 00:39:06,950 That's a very good thing to do. 379 00:39:08,990 --> 00:39:16,880 All comparison with last year to see how the business which what direction the business is trending in the often include variance analysis. 380 00:39:16,910 --> 00:39:22,400 So if turnover is a lot higher. Is that because we put our prices up or because we sold more? 381 00:39:22,670 --> 00:39:30,140 And good variance analysis would split the the increase between a volume increase in the price increase. 382 00:39:32,120 --> 00:39:41,640 And you put key performance indicators in there. I like key performance indicators and they've got to be designed with the specific business in mind. 383 00:39:41,650 --> 00:39:44,740 So let's have a look at some. They don't have to be financial. 384 00:39:44,740 --> 00:39:51,040 I'm a I'm a financial person myself, but actually I'm a big fan of non-financial key performance indicators because they, 385 00:39:51,850 --> 00:39:57,820 you know, they tend to be more comprehensible to the to the ordinary members of the organisation who want to know how we're doing. 386 00:39:58,390 --> 00:40:00,700 So just a simple example. 387 00:40:00,700 --> 00:40:11,650 You got recruitment agency that specialises in temps, the simple number of weekly, you know, each Friday, how many temps do we have out of clients? 388 00:40:12,820 --> 00:40:17,620 That's a really, really good indicator of how the business is doing. 389 00:40:17,890 --> 00:40:25,180 And if you set yourself targets to do that and and monitor your performance against that, that's a fabulous KPI. 390 00:40:26,020 --> 00:40:31,090 In a distribution business, you might have stock turnover, so you're buying stuff and distributing it amongst, 391 00:40:31,150 --> 00:40:35,680 you know, buying stuff and importing it maybe and distributing it amongst a number of customers. 392 00:40:36,340 --> 00:40:41,860 Stock turnover day is the how long do you on average do you hang onto your stock before you sell it? 393 00:40:42,370 --> 00:40:49,359 Because if that's too high, you're spending too much money on just holding stock that isn't doing anything for you. 394 00:40:49,360 --> 00:40:50,890 You're wasting your capital. 395 00:40:51,250 --> 00:40:58,770 If it's too low, you probably are at risk of not being able to provide your customers with what they need when they need it. 396 00:40:59,110 --> 00:41:04,150 And so you need to get that in balance. Web Marketing Business. 397 00:41:05,480 --> 00:41:10,190 You might have a number of hits to client sites as your. 398 00:41:11,160 --> 00:41:14,639 As your key performance indicator. That's nice one, 399 00:41:14,640 --> 00:41:20,640 because something like Google Analytics will actually collect that figure for you and you don't have to worry too much about doing it. 400 00:41:20,640 --> 00:41:25,910 Just publish it in your your monthly reporting document so that everybody can see. 401 00:41:28,500 --> 00:41:32,139 So. What this is all about. 402 00:41:32,140 --> 00:41:38,379 You've got to involve management. They've got to understand the financial information. 403 00:41:38,380 --> 00:41:43,900 They've got to have confidence in it. It's no good if they don't believe that is a true reflection of how the business is performing. 404 00:41:44,530 --> 00:41:49,840 They've got to review it to make sure that it is in line with what they expect and so on, 405 00:41:50,440 --> 00:41:54,310 and they've got to have meetings and discuss it even in the tiniest little business. 406 00:41:54,880 --> 00:42:00,250 This is this is this is not something you can go, Oh, we don't need to bother about meeting, 407 00:42:00,250 --> 00:42:03,430 you know, monthly meetings, quarterly meetings to discuss the accounts. 408 00:42:03,580 --> 00:42:05,260 You do trust me. You do. 409 00:42:05,440 --> 00:42:12,640 Because anybody who doesn't is taken off the board and they risk, you know, all sorts of disasters happening to the to the business. 410 00:42:13,390 --> 00:42:20,980 So management information is pretty important. And unwillingness to to give it the attention it deserves is courting failure. 411 00:42:20,980 --> 00:42:23,470 It is not someone else's problem in an SMB. 412 00:42:23,680 --> 00:42:29,919 It is in a big corporate, which is why these people have such a challenge going from one culture to the other. 413 00:42:29,920 --> 00:42:35,170 It is someone else's problem. There's a whole finance department to look after that would have to worry about it. 414 00:42:35,470 --> 00:42:42,710 And that smee is everybody's problem. What else do we use management accounts for? 415 00:42:42,740 --> 00:42:48,410 Well, as I say, reporting to the business angels or whatever lenders and so on, 416 00:42:49,310 --> 00:42:55,640 potential providers of finance, frequency, monthly, quarterly, half yearly, whatever suitable. 417 00:42:56,120 --> 00:43:01,310 And they have credibility. If you've got someone coming along, maybe a potential customer, maybe a supplier, 418 00:43:01,520 --> 00:43:06,420 maybe a potential partner in some venture that you're going to maybe a possible acquirer or lender. 419 00:43:06,440 --> 00:43:14,510 Any of those will go kind of see the management accounts. And if you go, I don't got any you just you lose credibility, okay? 420 00:43:15,260 --> 00:43:20,450 If you if you're into those kind of those kind of dealings with people and want to be taken seriously, 421 00:43:20,450 --> 00:43:24,530 you need to be able to say, yeah, we review these figures monthly. 422 00:43:25,820 --> 00:43:29,540 Okay. There is there's cash and there's it's crown to show that it is king. 423 00:43:30,260 --> 00:43:39,800 And okay, that is the hockey stick curve is typical of start up businesses. 424 00:43:40,400 --> 00:43:43,750 They have they have no turnover. They spend money. 425 00:43:43,760 --> 00:43:54,590 So the cash goes downhill and then they they start to build up sales and and so revenues start to cover some of those costs. 426 00:43:54,860 --> 00:44:01,910 And eventually you'll get reached the bottom of the pit, the break even point where money coming in exceeds money going out. 427 00:44:02,210 --> 00:44:08,360 And hopefully that as long as that improves, we start going up the hockey stick and eventually start generating cash. 428 00:44:09,830 --> 00:44:13,700 Okay. Typical early stage, high growth companies. 429 00:44:14,180 --> 00:44:18,680 Now there's that phrase depth of trough is sensitive to slippage. 430 00:44:19,190 --> 00:44:25,580 What I mean by slippage is it just takes that little tiny bit longer to get the sales going, 431 00:44:25,640 --> 00:44:31,280 to get the revenues up, or they don't quite build up as fast as you thought they were going to. 432 00:44:32,690 --> 00:44:38,690 The how deep that trough is and when it happens is incredibly sensitive to that. 433 00:44:38,960 --> 00:44:47,630 And, you know, anybody who's built a a decent set of projections of a start up business. 434 00:44:48,780 --> 00:44:55,320 That has tried a bit of flexing and said, well, what happens if sales take three months longer to get going? 435 00:44:55,500 --> 00:45:02,520 Or what happens if sales we only achieve 50% of all of our growth planned and so on? 436 00:45:02,550 --> 00:45:11,850 And the one thing that happens really quite scarily is not only does that thing get wider, but it gets deeper and quite scarily deeper. 437 00:45:13,250 --> 00:45:16,490 Okay. It really is very, very sensitive. 438 00:45:16,640 --> 00:45:20,870 You know, an extra month before your sales start taking off, 439 00:45:21,200 --> 00:45:29,630 you've got a whole month's worth of extra outgoings with no extra income to compensate for it, 440 00:45:29,990 --> 00:45:33,530 and therefore it will be deeper by a whole month's cash burn. 441 00:45:35,590 --> 00:45:39,450 So you need a plan B? Didn't want that plan B could be. 442 00:45:39,720 --> 00:45:45,360 But you need a plan B. Could be having some back up funds. 443 00:45:45,360 --> 00:45:49,560 It could be having. You know, some of your own savings. 444 00:45:49,950 --> 00:45:54,030 It could be. Having warned your investors that actually you might need another funding round. 445 00:45:54,510 --> 00:46:00,480 You need a plan B. So how do we how do we how do we sort of stop these disasters happening? 446 00:46:00,500 --> 00:46:05,600 It is unforgivable to run out of cash and I think usually terminal for most businesses. 447 00:46:05,600 --> 00:46:09,530 Most businesses don't fail for lack of sales. They fail for lack of cash. 448 00:46:13,050 --> 00:46:17,100 So you need to monitor them. Need to plan and monitor them. 449 00:46:18,850 --> 00:46:26,440 Calculate your cash burn. Okay, calculate. What if nothing comes in your spending each month or whatever? 450 00:46:27,040 --> 00:46:31,030 And if you know how much money you've got in the bank, you know what your monthly cash burn is. 451 00:46:31,510 --> 00:46:34,810 You only need to divide one by the other to find out what your life is. 452 00:46:35,530 --> 00:46:39,969 Okay? You just divide the cash by the cash burn per month, 453 00:46:39,970 --> 00:46:44,980 and that will tell you how many months you can survive before you need to have got those sales and revenues 454 00:46:44,980 --> 00:46:50,200 coming in to compensate for it or another funding round or some other way of getting some cash in. 455 00:46:53,140 --> 00:46:56,320 Let's move on to the formal financial reporting. 456 00:46:56,770 --> 00:47:04,870 I've picked on a fairly large, well-known company there, Mark Sparks, with that's the front cover of that annual report. 457 00:47:08,190 --> 00:47:10,319 And that's prepared for the shareholders. 458 00:47:10,320 --> 00:47:17,720 The responsibility is to the shareholders, it's prepared by the directors and that is the responsibility of the directors. 459 00:47:17,730 --> 00:47:23,220 And that's true of Marks and Spencer and you know, Oxford Widgets Ltd. 460 00:47:24,870 --> 00:47:27,910 And even if they're audited, that's still the responsibility. 461 00:47:27,930 --> 00:47:33,090 The directors, just the auditors are adding their name to the to the people that you can sue if they're wrong. 462 00:47:34,410 --> 00:47:38,610 Directors are still to blame. So what's all this about the companies? 463 00:47:38,610 --> 00:47:44,820 Act 26 is the current legislation that determines that companies have to prepare accounts and the 464 00:47:45,090 --> 00:47:49,830 framework under which they have to prepare the accounts and they have to give a true and fair view. 465 00:47:50,310 --> 00:47:56,400 Hang on a sec. A true and forgive you. Surely they have to give the true and fair view. 466 00:47:56,430 --> 00:48:06,870 You know, anything else is going to be wrong, isn't it? Well, I'm afraid not, because there are different ways of representing certain things. 467 00:48:07,440 --> 00:48:09,750 For example, it is possible. 468 00:48:10,640 --> 00:48:18,080 When you spend money on research and development to say that's the cost of the year in which I do the research and development expense remittance, 469 00:48:18,080 --> 00:48:20,659 the profit loss account, or it's possible to say no, 470 00:48:20,660 --> 00:48:26,510 I've created an asset with that and I will capitalise it and put it in my balance sheet and provided the circumstances right. 471 00:48:26,570 --> 00:48:35,640 You can choose. And both of them give a true and fair view their different true and fair view, and you need to disclose which one you've adopted. 472 00:48:35,730 --> 00:48:42,090 So anybody who's reading the financial statements will understand which true in five you've given and how you arrived at it. 473 00:48:43,500 --> 00:48:48,840 So you accounting standards and and there are notes and disclosures so that anybody reading the financial 474 00:48:48,840 --> 00:48:55,410 statements knows the basis on which they're prepared and can work out the true and fair views that they've given. 475 00:48:56,700 --> 00:49:04,110 What's an audit or an audit? Is someone else coming in and having a look and putting that putting their signature? 476 00:49:05,210 --> 00:49:15,350 To a statement that says in a lot of words, but in broad terms, what it says is, I'm really, really certain that these are roughly right. 477 00:49:17,020 --> 00:49:21,280 Okay. An audit will not go down and find to the last six months. 478 00:49:21,520 --> 00:49:23,110 That's not what it's designed to do. 479 00:49:23,380 --> 00:49:33,100 What is designed to do is it uses statistical sampling and all sorts of advanced sort of mathematical techniques to be really, 480 00:49:33,100 --> 00:49:41,110 really certain that any any mistake isn't that big, because, after all, that's much more useful. 481 00:49:41,380 --> 00:49:49,830 If you had if you had to find out that there are no mistakes whatsoever, the only way to do that is just do it all over again, 482 00:49:49,840 --> 00:49:57,520 which is just out of, out of out of all proportion to the costs will be out of all proportion to the usefulness of such an exercise. 483 00:49:57,910 --> 00:50:04,300 But if somebody can say now, I'm really, really certain that that nothing too bad. 484 00:50:05,370 --> 00:50:09,270 Kind of could have slipped through these these accounts by mistake or deliberately. 485 00:50:10,510 --> 00:50:17,980 That is actually quite a useful thing to have sometimes provided there is somebody looking at it who will get some comfort from that. 486 00:50:18,610 --> 00:50:26,110 There is some debate. Many, many, many small companies are exempt from audit and quite honestly, the values that they add. 487 00:50:27,060 --> 00:50:37,140 Is not that great. We tend to do audits for small companies where it's optional if, for example, the owners of the company are in another country. 488 00:50:37,740 --> 00:50:43,110 So the management are running it and the owners want somebody to come and put an 489 00:50:43,110 --> 00:50:47,220 independent view that the that what the management are telling them is actually true. 490 00:50:47,730 --> 00:50:54,870 For example. So the debate about whether there's any added value. 491 00:50:55,980 --> 00:51:01,290 So the financial statements, along with Dubai's saying the accounts, the annual accounts, they determine the corporation tax. 492 00:51:01,590 --> 00:51:05,370 They go with a a corporation corporation tax return to HMRC. 493 00:51:05,730 --> 00:51:14,520 Corporation tax return was a piece of paper for most of my professional life, and then it became a PDF of that. 494 00:51:14,970 --> 00:51:21,390 Now none of that is good enough. No paper corporation tax returns, no PDF Corporation Tax Returns. 495 00:51:21,390 --> 00:51:24,840 Corporation Tax Returns are now submitted in i XBRL. 496 00:51:25,590 --> 00:51:35,480 In line extended business reporting language and that is a machine readable format which allows the the the 497 00:51:35,520 --> 00:51:41,760 machines to check whether you're whether it looks as if you're on the fiddle in your corporation tax return. 498 00:51:43,650 --> 00:51:45,270 You've got to file the accounts companies house. 499 00:51:45,270 --> 00:51:51,720 But as I mentioned, abbreviated accounts for small companies and that gets gets you out of too much disclosure. 500 00:51:51,930 --> 00:51:57,810 But that doesn't mean you don't have to do the full accounts. They're still needed for the shareholders and for H.M. Revenue and Customs. 501 00:51:58,080 --> 00:52:07,140 You can't get out of full accounts for any company only, you know, only get out of filing full accounts by finding abbreviated ones. 502 00:52:08,780 --> 00:52:12,770 They're just very quickly look at how entrepreneurs can get rewarded. 503 00:52:13,880 --> 00:52:16,520 They can get salary or dividend out of that company, 504 00:52:17,600 --> 00:52:23,480 or they can get money on an exit when they sell the business to Microsoft or AstraZeneca or whoever. 505 00:52:25,460 --> 00:52:28,700 And we have a quick look at reward for key employees as well. 506 00:52:29,750 --> 00:52:37,430 So dividends, dividends, you've probably heard very tax efficient Fernanda managed business and good things, but they can only be paid out of profits. 507 00:52:37,430 --> 00:52:42,140 So the the pre-revenue company ain't going to be paying dividends for a while. 508 00:52:43,370 --> 00:52:48,980 They must be paid to all the shareholders, not just the people who are working day to day in the business. 509 00:52:50,190 --> 00:52:57,980 They must be paid to the shareholders in their shareholding ratio and it really does suit a profitable owner managed business, you know. 510 00:52:59,550 --> 00:53:03,130 Fred and Susie set up a business, the 5050 shareholders. It makes a lot of money. 511 00:53:03,390 --> 00:53:09,150 They pay each month. They have a dividend. Each year they have a dividend of half the the available profit. 512 00:53:11,250 --> 00:53:17,190 Salaries, on the other hand, can be paid and nothing like as tax efficient, they can be paid out of pre-revenue companies, 513 00:53:17,670 --> 00:53:26,490 but they there's loads of an AI and horrible costs on top of that, but they can be paid without regard to the shareholders. 514 00:53:26,850 --> 00:53:33,990 So you can pay, obviously, somebody who has a relatively modest shareholding, a fair salary to attract them. 515 00:53:35,890 --> 00:53:37,420 I'm just gonna bang on a bit about directors. 516 00:53:38,470 --> 00:53:47,670 Anybody who tells you, Oh, I'm a non exec or I'm a, I'm a self-employed director and, and therefore I don't need to, 517 00:53:47,680 --> 00:53:52,450 you know, the money that the company pays me can go, doesn't need to go through the P.A. system. 518 00:53:54,310 --> 00:53:59,500 I'm sorry they are talking utter so I'm family show so I can't you but it's not true. 519 00:53:59,740 --> 00:54:05,710 Directors are office holders. They are everything that they do for the company is subject to pay. 520 00:54:06,250 --> 00:54:09,460 Okay. Don't let anybody tell you otherwise. 521 00:54:09,670 --> 00:54:15,640 You will all you will always find somebody down the pub who says, Oh, well, my company pays me on a self-employed basis and that's alright. 522 00:54:15,790 --> 00:54:18,790 It's only alright because H.M. Revenue Customs haven't looked at it yet. 523 00:54:18,970 --> 00:54:21,070 It's not all right, it's illegal. 524 00:54:22,090 --> 00:54:29,740 You know, and the trouble is that when they find out, they'll they'll they'll clobber you and find you and penalise you and do horrible things to you. 525 00:54:30,130 --> 00:54:34,990 If the director operates through their own limited company, then they can be paid without operating pay. 526 00:54:35,320 --> 00:54:39,790 But you've just shifted the problem. Anybody heard of a thing called I-35, 527 00:54:39,790 --> 00:54:47,620 which which actually just moves the problem one down the line and makes the director's own little company have to pay pay on it. 528 00:54:47,770 --> 00:54:55,840 It doesn't get you out of the problem. So this is employment status when you're engaging someone who claims to be self-employed. 529 00:54:56,350 --> 00:55:03,670 You actually need to look at the relationship that self-employed is something which applies to relationships, not individuals. 530 00:55:04,150 --> 00:55:04,870 Okay. 531 00:55:05,530 --> 00:55:15,610 If it's too much like employment, the HMRC will ask for tax on the basis of the fees with a net pay that they operated, pay on the gross them up, 532 00:55:16,690 --> 00:55:23,560 charge, tax and national insurance on the grossed up amount and they can go back six years and charge you interest and penalties as well. 533 00:55:24,340 --> 00:55:31,389 Businesses have been have been bankrupted by people not dealing with people who 534 00:55:31,390 --> 00:55:36,310 are really employees and charging them tax through the pay system accordingly. 535 00:55:37,180 --> 00:55:41,710 Awful warning payroll full of bear traps, full of pitfalls. 536 00:55:42,670 --> 00:55:46,180 In the rare occasions when it's simple, you don't worry about it. 537 00:55:46,690 --> 00:55:51,580 But it really is a scary place for the unwary. 538 00:55:52,900 --> 00:56:00,549 All the acronyms are real time submission, safety, sick pay, statutory presented by statutory paternity pay, student loan deductions, pensions. 539 00:56:00,550 --> 00:56:11,620 And now with auto enrolment, you know, and this dates when every company of college A has to be auto enrolled into the pension regime. 540 00:56:12,430 --> 00:56:17,200 Directors and I which is weirdly different from ordinary human beings. 541 00:56:17,200 --> 00:56:21,109 And I don't try just to outsource that to specialists. 542 00:56:21,110 --> 00:56:25,299 It's it's a it's a commodity. And people will do that right for you. 543 00:56:25,300 --> 00:56:30,830 You don't need to worry about it. I will quickly talk about benefits in kind. 544 00:56:30,860 --> 00:56:34,190 Just to say don't bother because they're very rarely tax efficient. 545 00:56:35,330 --> 00:56:44,299 HMRC have set up rules that if you start giving people benefits in the way of sort of remuneration them under the under the radar, 546 00:56:44,300 --> 00:56:47,900 it won't be under the radar and you'll get into trouble. Used to be good for cars. 547 00:56:48,040 --> 00:56:51,180 No, no. Nobody now operates a company car. 548 00:56:51,420 --> 00:56:55,040 Unless you're a salesman doing 18,000 miles a year or something like that. 549 00:56:55,820 --> 00:56:59,120 Sometimes you have to do it. I mean, you can't get a salesman unless you give them a car. 550 00:56:59,480 --> 00:57:03,830 But don't expect it to be tax efficient. Beneficial loans. 551 00:57:03,860 --> 00:57:06,980 They used to be really great back in the days when interest rates were high. 552 00:57:07,490 --> 00:57:14,299 But actually now, you know, interest rate, if if if you're able to borrow the money, you might as well pay the full interest rate. 553 00:57:14,300 --> 00:57:21,110 And it's not a problem. Accommodation works if if you're the janitor in a school, that's about it, you know? 554 00:57:21,530 --> 00:57:21,830 You know, 555 00:57:21,980 --> 00:57:29,100 you can't you can't give people a company flat without them paying the amount of tax that they would have paid if they'd paid for their own flat. 556 00:57:29,120 --> 00:57:39,620 It just doesn't work. Okay. The only one remaining tax efficient benefit in is pension, because you can pay that within the limits, the legal limits. 557 00:57:40,100 --> 00:57:45,890 You can you can attract people by paying pension on their behalf. And there will not be a tax liability on it. 558 00:57:47,450 --> 00:57:50,630 Let's quick talk talk quickly about employee participation. 559 00:57:50,870 --> 00:57:55,820 Employees, you know, you want you've got somebody who you really like to come work for you and. 560 00:57:56,910 --> 00:58:01,260 You can sort of afford them, but actually you'd really like to sort of bring them in, 561 00:58:01,800 --> 00:58:06,030 nailed them in place, get them committed to your your new business. 562 00:58:06,300 --> 00:58:12,240 How do we do that? So the question I'm asking is a good idea to encourage employees with share ownership. 563 00:58:14,170 --> 00:58:18,190 Two risks that I and this is awful warning. 564 00:58:18,200 --> 00:58:22,580 First one, it can be difficult to undo. You can sack somebody as an employee. 565 00:58:22,600 --> 00:58:27,069 You might have to pay them pay them compensation. 566 00:58:27,070 --> 00:58:31,420 But at the end of the day, you can get rid of them. You can sack somebody as a director again. 567 00:58:31,510 --> 00:58:36,220 You might have to pay them compensation, but you can get rid of them. You cannot sack somebody as a shareholder. 568 00:58:36,700 --> 00:58:38,950 If they've got a share certificate, they can hang on to it. 569 00:58:39,040 --> 00:58:48,220 Unless you have unless they're prepared to let it go or you've got a shareholder agreement with clauses in that allow you to to to claw them back. 570 00:58:48,700 --> 00:58:49,719 So that's the first risk. 571 00:58:49,720 --> 00:58:58,870 And the other one is that tax liabilities, as we saw earlier, for people coming in to shareholdings and valuable companies, can be very scary. 572 00:59:00,750 --> 00:59:05,700 On the other hand, as a staff retention strategy is quite a good idea because people feel more involved. 573 00:59:05,700 --> 00:59:12,110 They feel valued if they've got shares. So how do we do that? 574 00:59:12,710 --> 00:59:15,830 Well, let's look at it. Three reasons for owning shares. What shares? 575 00:59:15,830 --> 00:59:21,260 Give you three things. They allow you to vote. They allow you to share in any dividend that gets paid. 576 00:59:22,010 --> 00:59:30,330 And they allow you to share in the proceeds of an exit. The company sold to Microsoft or AstraZeneca and with a for a big check. 577 00:59:30,350 --> 00:59:33,590 And if you've got 5% of the shares, you get 5% of the check. 578 00:59:36,810 --> 00:59:44,250 Let's be honest, in an SME a one is irrelevant the voting because the founders alone sort of 80% of the company 579 00:59:44,550 --> 00:59:50,820 and you're 5% amongst you know you're not going to be able to vote in any meaningful way. 580 00:59:52,890 --> 00:59:59,610 Number two can be replaced with a bonus scheme. If you really want to incentivise people and give them money as a share of the profit, 581 00:59:59,610 --> 01:00:01,530 you can give, give them a bonus, which is a share of the profit. 582 01:00:01,770 --> 01:00:08,670 Not quite as tax efficient as dividend, but let's be honest, you know, that's that's a minor price to pay for getting it right. 583 01:00:08,880 --> 01:00:14,670 It's three that really matters. What you want them to do is you want them to help you build up the value of the business 584 01:00:14,850 --> 01:00:20,040 so that that cheque that Microsoft or AstraZeneca can come along with is enormous cheque. 585 01:00:20,580 --> 01:00:21,270 And therefore, 586 01:00:21,300 --> 01:00:27,960 you don't mind if they get an enormous part of an enormous cheque because your enormous part is going to be even more enormous than theirs. 587 01:00:28,350 --> 01:00:32,370 So we want to encourage them with that, and that's the thing that matters. 588 01:00:32,640 --> 01:00:39,450 So how do we bring about the situation where these people can share in that enormity of that cheque? 589 01:00:39,630 --> 01:00:50,400 And the answer is of the downside of doing it is that if you issue the shares to the employees anything less than full market value, 590 01:00:50,580 --> 01:00:53,880 then they've got to pay tax on the discount that you've allowed them. 591 01:00:54,330 --> 01:01:01,170 That's what we saw earlier. So we're trying to get this employee participation in the growth without them having a huge tax bill. 592 01:01:02,040 --> 01:01:10,890 And how do we do that? And the answer is, I think my enterprise management incentive, which is a government scheme, is a tax scheme. 593 01:01:11,310 --> 01:01:17,670 So what I mean about sometimes the taxman can actually be quite nice or the treasury can be quite nice and bring in rules that allow you to do it. 594 01:01:17,970 --> 01:01:26,850 You can essentially grant people options, the set of rules under which it happens and they don't have to pay any tax when their options are granted. 595 01:01:27,360 --> 01:01:28,469 They don't have to pay any tax. 596 01:01:28,470 --> 01:01:35,970 When the options are exercised, you grant them of the current market value, but they don't actually have to exercise them until, 597 01:01:35,970 --> 01:01:39,120 you know, five years time when the value of the company shot through the roof. 598 01:01:39,570 --> 01:01:46,500 But they still don't have any tax to pay until they actually sell the shares, usually on an exit when, 599 01:01:46,500 --> 01:01:50,490 as I say, one of the one of the big boys comes along with that enormous cheque. 600 01:01:51,450 --> 01:01:55,589 And they exercise them and there's no tax when they're granted. 601 01:01:55,590 --> 01:02:00,780 There's no tax on the exercise, and they only have to pay capital gains tax on the uplift. 602 01:02:02,000 --> 01:02:06,230 And thanks to a fairly recent change in the law that happened last year, 603 01:02:06,920 --> 01:02:14,270 they only have to pay 10% tax on that uplift because of a thing called entrepreneur's relief, which now applies to EMI shares. 604 01:02:14,480 --> 01:02:23,030 So what I'm trying to say here is that if you don't think about these things and take advice and make sure you comply with the rules, 605 01:02:23,300 --> 01:02:29,060 you have these horror stories that I showed you at the beginning, if you'll if you check on the rules. 606 01:02:29,150 --> 01:02:36,200 There are ways to do these things properly. But you need to you need to make sure you're properly advised on how these things work. 607 01:02:37,310 --> 01:02:45,740 Okay. Doesn't mean. I'm sorry. I'm. I'm over running, but I haven't been kicked out yet, so I'll keep going until I am on an exit. 608 01:02:45,770 --> 01:02:49,700 How's business valued? There is no single, meaningful way. There's no formula. 609 01:02:50,280 --> 01:02:54,020 And in a typical investment company, which has got lots of properties. 610 01:02:56,690 --> 01:02:59,120 Then you just value the properties and have them together. That's easy. 611 01:02:59,120 --> 01:03:03,520 But most of them, it's what they call the present value of the future earnings, 612 01:03:03,950 --> 01:03:10,489 the earnings stream back in that you can't you estimate what the company is 613 01:03:10,490 --> 01:03:15,320 going to make and then you calculate what the capital equivalent of that is, 614 01:03:15,680 --> 01:03:22,310 and that is the value of the company. But there's a lot of unknowns, a lot of parameters that you feed into there that are sort of. 615 01:03:23,360 --> 01:03:26,480 You know, I think it will make this much money. 616 01:03:26,600 --> 01:03:33,660 I think an appropriate price, earnings multiple is this. I think that the costs incurred I will incur to achieve that will be these. 617 01:03:33,680 --> 01:03:37,020 But you just don't know. The real value is determined by horse trading. 618 01:03:37,040 --> 01:03:40,550 What will someone pay for it? That is the real value of the company. 619 01:03:41,390 --> 01:03:47,930 And it's the same. You know, the surveyor comes along and tells you your house is worth 487,002 and £21.60. 620 01:03:48,620 --> 01:03:53,720 Helpful. But actually, unless somebody is prepared to pay that, it's it's so much nonsense. 621 01:03:54,230 --> 01:03:57,860 And the same is true of company valuations needs to be worth that to somebody. 622 01:04:01,110 --> 01:04:04,559 Due diligence. Yes. You've got your business going. 623 01:04:04,560 --> 01:04:13,110 You've got up and running. You've made a load of money. And the the the, you know, key industry player is sniffing around, wanting to buy you out. 624 01:04:13,350 --> 01:04:18,790 And they want to come in and check that everything is as you say it is. 625 01:04:18,810 --> 01:04:23,670 So they will do due diligence and and they will look closely. 626 01:04:23,670 --> 01:04:30,110 They will kick the tires. Examined in detail by a prospective purchaser. 627 01:04:31,500 --> 01:04:36,059 And they will look at your financial controls and your financial disciplines, among other things. 628 01:04:36,060 --> 01:04:40,110 They look at your technology, they look at your staff, they look at your h.r procedures. 629 01:04:40,110 --> 01:04:41,400 They look at your contracts. 630 01:04:41,610 --> 01:04:51,180 But the bits that we have to worry about in today's session is the financial controls and disciplines and they will be scrutinised in some detail. 631 01:04:52,050 --> 01:04:55,840 You will be fine. Does she have great controls? 632 01:04:55,850 --> 01:04:58,590 Because you've been here today. Thank you very much.